Mike McGlone, the senior macro strategist at Bloomberg Intelligence, outlined the primary catalyst for the downturn of Bitcoin and Crypto prices. In his recent digital asset analysis, McGlone cited the US Federal Reserve’s hawkish inflation-curbing strategy as the primary factor that could exert downward pressure on risk assets like digital assets.
The analyst noted that the crypto bear market is far from over while advising buy-and-hold investors to seek protective insurance against asset devaluation. He also said that the recent bounce back by digital assets rendered them susceptible to future price downturns.
Fed’s Interest Rate Hike: The Primary Catalyst For Crypto Market Downturn
While analyzing the recent downturn in the financial market, McGlone addressed the Fed’s insistence on raising interest rates despite the strategy’s potential to cause a recession in the economy. According to the McGlone, crypto assets and equities have not seen their lows yet.
This statement implies the worst is yet to come, and cryptocurrency prices might plunge even further downward once the Federal Reserve implements the next basis point (bps) in its interest rate hikes.
The Bloomberg analyst said the stock market, including crypto, is one of the world’s most energetic forces during its decline. And the Fed’s monetary tightening amid high recession risks is a strong catalyst for this decline. He mentioned $25,000 as the primary support level for Bitcoin while adding that March will decide the fate of crypto prices.
Whether cryptocurrencies, Bitcoin inclusive, sustain their pivot levels depends on the CPI data coming out in March. The CPI data would determine how hard the recession is pressing on consumers and how much the Fed’s tightening has weighed on Inflation.
If the CPI data comes out low, the market sentiment will improve while spiking crypto and stock prices. However, if the index is high, investor sentiment would plunge even deeper causing a massive price decline across the stock and crypto market.
Digital Assets Have Not Seen Their Bottoms Yet, Says Analyst
McGlone’s analysis suggests that the 2022 lows recorded by Bitcoin and other crypto assets might not be their bottoms. More danger might be looming with Fed’s additional tightening in March. In the report, McGlone further noted that the markets seem to be underestimating the lagging effects of monetary policy, which should be a good reason to be defensive.
As McGlone cited, the federal interest rate was zero a year ago and is now rising. He noted that risk assets like Bitcoin must prove resilience at the start of March, as the federal interest rate is now approaching 5%. Since Bitcoin couldn’t hold its key support level of $25,000 at the beginning of March, chances that higher interest rates will further press it down are high.
Featured image from Pixabay, chart from TradingView.com